Learn to be a Financial Hunter - Not the Hunted

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How To Audit Your Credit File
Introduction
Nobody gets given a good credit rating - you have to earn one

That is the most important point to realise about Credit Files. Sadly, the reverse is also true - nobody has a bad credit rating, that will have been earned as well. 

This highlights the importance of checking your credit file to make sure it is both free of mistakes and as accurate as possible.

Why? Because a clean credit rating gives you financial options whether you choose to use them or not.

For example, if you have a strong credit rating you will have no trouble in qualifying for another Credit Card, loan, remortgaging your property, opening a mobile phone contract or even signing up to a new bank account. 

Conversely, having a bad credit rating means you'll struggle to open even the most basic of bank accounts. And as for credit accounts or even a mobile phone contract - the odds suggest you'll be refused the majority of the time.  

So this guide offers some simple steps to make sure your Credit File is in as good a shape as it possibly can be.

Finally, if you need any background information to what a Credit File is (and in turn a credit rating) and how it works, as well as further steps towards improving your rating, then see our detailed Credit File Help section.

A further benefit of having a good Credit File - It's a great way to save money

Another important reason for having a good credit file, apart from offering you financial options, is that it is a great way to save money. 

Around 80% of loans and at least 60% of Credit Cards offer interest rates at different levels according to the person's credit rating.

Take a personal loan as an example -

  • Excellent credit rating - the interest rate on the loan will be 8.9%
  • Average credit rating - interest rate of 11.9%
  • Below average rating - interest rate of 15.9%
  • Bad credit rating - the application will probably be rejected
However, many people don't want loans or more credit cards so they might feel there's little cause for concern if their rating is negative. But a mortgage is also a loan and many readers will either have one or will be looking to take one out at some time in the future.

So if you want the best mortgage deal, the one with the most competitive interest rate, it's going to be hard to qualify unless your credit file is squeaky clean. Plus, what about remortgaging into a cheaper deal? Again, that will only be possible if your credit file is in tip-top condition and remortgaging can be a great way to cut down your monthly budget. 

Summary - A clean credit rating is one of the keys to saving money on personal finance products. It's therefore no surprise that in our 10 Secrets to Personal Finance, this is Secret number 7 -  

Protect your credit rating with your life

Credit Scoring is a Black/White world - Why this is important
Computers as we know are very powerful machines, however they cannot judge because they have no logic. This means in the computer world everything is black/white or yes/no - there is never any grey or 'perhaps'. 

Most of the time when you apply for credit a human being won't look at your credit file. Instead it will be automatically fed into the bank's credit scoring software which in turn will spit out a decision: 

  • yes - we accept this person for credit, or
  • no - we reject

So if there are errors on your Credit File they can cause problems with a credit application. For example -

  • Assume you're rejected for credit because of some incorrect information on your credit file
  • Also assume the incorrect information is a genuine mistake by your credit card company
  • The card company is in the process of sorting the mess out
  • However, this has been dragging on for the last 3 months as the customer service department leaves a lot to be desired
The point I'm making is that if you were dealing with an actual person when applying for credit you could explain to them what's going on. In fact you could prove via the official correspondence (with your credit card company) that the problem is a genuine error that is due to be corrected.

The bank officer would then probably apply some basic logic, disregard the negative information and the fact the computer says no and approve your application.

But the computer can't and won't do this - it's either a yes or no decision based solely on the information contained on your credit file. And if those details are wrong, you'll probably pay the penalty.

This fact highlights the importance of this guide in stressing that your credit file details are correct and that it always reports a true and accurate picture of your personal and financial details.

How the Credit File Audit works
There are 4 steps -
  1. Order your credit file from the 3 CRAs
  2. Check your Credit File for mistakes and other incorrect information
  3. Correct any mistakes, errors or missing information
  4. Wait 4-6 weeks then re-order your Credit File
The bad news is these steps cannot be rushed because it usually takes time for an error, perhaps a wrong Postcode, to be corrected and your file subsequently updated.

The good news though is that all the steps are easy to follow and put into practice. Costs should be minimal, in the £6 to £12 range (to pay for your credit files). Although if you're crafty you can get hold of your file(s) for free by signing up to a monthly plan option offered by all the CRAs (1st month is always free) - then cancel within the month.

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